System for collecting tax data

ABSTRACT

An electronic intermediary electronically connects with a tax data provider and collects electronically tax data from the tax data provider. The electronic intermediary processes the tax data collected electronically, and prepares an electronic tax return using the processed tax data.

This application claims the priority of U.S. Provisional PatentApplication Ser. No. 60/045,945, filed May 8, 1997, and a continuationof U.S. patent application Ser. No. 09/073,027, filed May 7, 1998, nowU.S. Pat No. 6,202,052.

BACKGROUND OF THE INVENTION

The invention relates generally to collecting, processing, compiling,and distributing information and data. More specifically, the inventionrelates to a method, an apparatus, and an article of manufacture forautomated tax reporting, payment, and refund.

In recent years, an increasing amount of data and other informationnecessary to compute the federal, state, local, and foreign income taxliability of individual taxpayers and other taxpayers, including certaintrusts, estates, corporations and partnerships, is availableelectronically and capable of being transmitted over telephonecommunication equipment or other electronic means to the taxpayer or thetaxpayer's agent or representative. For example, payroll, bankstatement, residential mortgage payment, and brokerage and mutual fundaccount information is prepared almost entirely on computers, and iscapable of being transmitted electronically in standardized or otherreadable format. In addition, for data that is necessary to compute ataxpayer's liability but that may not at present be regularlytransmitted to the taxpayer, such as the amount of donations made tocharitable organizations, the information is generally entered into, andprocessed by, computers and could easily be transmitted to the taxpayeror the taxpayer's agent electronically using telephone communicationequipment, by modem, or through the Internet. Thus, substantially all ofthe information necessary to compute most individuals' and many othertaxpayers' income tax liability is readily available and capable ofbeing transmitted electronically.

In addition, tax return preparation has become increasingly automated.Several computer programs are available for individual taxpayers tocompute their federal income tax liability and generate completed taxreturns (such as TurboTax, which is a registered trademark of Intuit,Inc.). Further, tax return professionals, who prepare over forty-ninepercent of individual tax returns, routinely process the tax returns ofmillions of individuals and other taxpayers on computers with automatedsoftware. See Jim McTague, “Auditing the IRS,” Barron's 29 (Dec. 23,1996); Internal Revenue Service, 1995 Data Book 3 (July 1996).

Moreover, few legal interpretational issues or methodology variationsexist with respect to the income tax liability of individuals and othertaxpayers whose taxable income, gain, loss, and deduction consistsubstantially of wages, interest, dividends, capital gains and losses,residential mortgage interest, state and local taxes, and other similartypical items. For taxpayers whose income tax liability consistssubstantially of these items, as is the case with many or most U.S.individual taxpayers, computation of income tax liability is generally aroutine matter of collecting the relevant data, processing it,reflecting the data and ultimate calculations on the proper form orforms, and transmitting or otherwise sending the forms to the relevanttaxing authorities.

Finally, taxing authorities have increasingly automated the taxcollecting and return filing process. The U.S. Internal Revenue Service(“IRS”) permits in certain situations the electronic filing of taxreturns and the payment and refund of income taxes through electronicmoney transfers. For example, in 1997, thirteen million returns werefiled electronically, and 4.2 million Form 1040EZ returns were filed bytouch-tone phone. However, even with the ability to electronically file,less than 18% of all tax returns were filed electronically by Apr. 11,1997. See Internal Revenue Service, “IRS Concludes Successful TaxSeason” (Press Release) (Apr. 17, 1997). As a further example, U.S. Pat.No. 5,193,057 to Longfield shows a process for expediting tax refundpayments through the use of a loan by an authorized financialinstitution. Accordingly, few technological, legal, or practicalobstacles exist for the fully automated preparation and filing offederal and state tax returns for many individuals and other taxpayers,and further for the payment or refund of taxes.

However, despite these technological advances, the potential forfully-automated tax reporting has not yet been realized for severalreasons. First, at present, it is still necessary for individuals andother taxpayers to collect and save hard copies of, or otherwise record,all of the data and other information needed to compute their taxliability. This information includes: IRS Forms W-2 from theiremployers; IRS Forms 1099 from their banks; each mutual fund in whichinterests are held, each broker in respect of dividends, interest andgross brokerage proceeds, and other persons from whom payments arereceived; IRS Forms 1098 in respect of residential mortgage interestpaid; and canceled checks or other acknowledgments from charitableorganizations.

Second, to prepare a tax return individually, even if a taxpayerpurchases tax preparation software, installs it in a computer, learns touse the tax preparation software (and the relevant substantive tax lawnecessary to navigate through the software), the taxpayer must manuallyenter the tax liability information into the computer. Alternatively,even if the taxpayer hires an individual accountant, or other tax-returnpreparer, the taxpayer must deliver all of the hard copies of data andother tax liability information to the accountant, who, in turn, mustmanually enter this data information into a computer. For example, theprocess claimed in U.S. Pat. No. 5,193,057 to Longfield must occur inthe offices of an authorized tax return preparer who must manually inputthe taxpayer's tax information into a data processing machine.

Third and finally, taxpayers, at present, must print out or receive backcompleted income tax returns, and manually write checks for ultimate taxliability and mail or have mailed the entire package to the relevanttaxing authorities. In certain circumstances, as mentioned above, taxreturns may be filed electronically, and payments may be madeelectronically or refunds may be received electronically. However, thisability to file electronically is used sparsely. See Internal RevenueService, “IRS Concludes Successful Tax Season,” (Press Release) (Apr.17, 1997). Presumably, such sparse usage of the current electronicfiling system is due to the laborious manual steps still required andthat the modicum of automation offered by the current electronic filingsystem is not worth the effort to use it.

As a consequence of this manually intensive process, April 15 is a dateof considerable concern to the U.S. individual taxpayer, not onlybecause of the tax liability due on that day, but also because of thesubstantial time expenditures necessary to file annual federal, state,local, and foreign tax returns, even when the returns are prepared by atax professional. For example, in fiscal 1995, U.S. taxpayers spent 5.3billion hours fulfilling their tax responsibilities. See Jim McTague,“Auditing the IRS,” Barron's 29 (Dec. 23, 1996). For this reason, thefederal income tax system has been the target of legislative proposalsfor substantial “simplification” that would reduce the reportingrequirements of many taxpayers. However, in order to achieve this taxreporting simplification, the legislative proposals would generally makesubstantial alterations to the entire federal income tax system, withsignificant adverse consequences.

SUMMARY OF THE INVENTION

It is an object of the present invention to eliminate many of theinconveniences associated with the filing of federal, state, local, andforeign income tax returns and the payment of any associated taxliability or receipt of tax refund in accordance with to the tax laws.

Another object of the present invention is to reduce error in and thecost associated with the filing of tax returns.

A further object of the present invention is to eliminate the need forhard copies of all or virtually all intermediate tax reporting forms,and thereby to realize savings in paper, time, and cost.

The above objects and advantages of the present invention are achievedby a method, an apparatus, and an article of manufacture forfully-automated tax reporting, payment, and refund. The methodcomprises: connecting electronically to tax data providers; collectingelectronically tax data from the tax data providers; processingelectronically the tax data collected electronically from the tax dataproviders to obtain processed tax data; preparing electronically anelectronic tax return using the processed tax data; connectingelectronically to taxing authorities; filing electronically theelectronic tax return with the taxing authorities; connectingelectronically to a financial institution; and paying or receivingelectronically tax liability or refund, respectively, between thefinancial institution and the taxing authorities.

Further, the apparatus of the present invention comprises a generalpurpose computer programmed with software to operate the general purposecomputer in accordance with the present invention. In particular, theapparatus comprises: means for connecting electronically to tax dataproviders; means for collecting electronically tax data from the taxdata providers; means for processing electronically the tax datacollected electronically from the tax data providers to obtain processedtax data; means for preparing electronically an electronic tax returnusing the processed tax data; means for connecting electronically totaxing authorities; means for filing electronically the electronic taxreturn with the taxing authorities; means for connecting electronicallyto a financial institution; and means for paying or receivingelectronically tax liability or refund, respectively, between thefinancial institution and the taxing authorities.

Still further, the article of manufacture of the present inventioncomprises a computer-readable medium embodying a computer program. Forthe present invention, the computer-readable medium embodying thecomputer program comprises code segments to control a general purposecomputer to perform the method of the present invention. Non-limitingexamples of a “computer-readable medium” include a magnetic hard disk, afloppy disk, an optical disk, a magnetic tape, a memory chip, and acarrier wave used to carry electronic data, such as those used intransmitting and receiving electronic mail or in accessing an electronicdata network, such as the Internet. Further, non-limiting examples of“code segments” include software, instructions, computer programs, orany means for controlling a general purpose computer.

In particular, the computer-readable medium embodying a computer programcomprises code segments for: connecting electronically to tax dataproviders; collecting electronically tax data from the tax dataproviders; processing electronically the tax data collectedelectronically from the tax data providers to obtain processed tax data;preparing electronically electronic tax returns using the processed taxdata; connecting electronically to taxing authorities; filingelectronically the electronic tax return with the taxing authorities;connecting electronically to a financial institution; and paying orreceiving electronically tax liability or refund, respectively, betweenthe financial institution and the taxing authorities.

Moreover, the above objects and advantages of the present invention areillustrative, and not exhaustive, of those which can be achieved by thepresent invention. Thus, these and other objects and advantages of thepresent invention will be apparent from the description herein or can belearned from practicing the invention, both as embodied herein and asmodified in view of any variations which may be apparent to thoseskilled in the art.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 illustrates the procedure of the invention.

FIG. 2 illustrates the relationships of the invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

Referring now to the accompanying drawings, wherein similar referencecharacters refer to similar reference parts throughout the drawings,FIGS. 1 and 2 depict the procedure used in the preferred embodiment fora method, an apparatus, and an article of manufacture forfully-automated tax reporting, payment, and refund.

In step 11, the taxpayer 20 provides the electronic intermediary 21 withinformation on tax data providers. As used hereinafter, the term“taxpayer” refers to an individual or other entity, such as a trust,estate, corporation, or partnership, who has tax liability or must filea tax return. The term “electronic intermediary” refers to a dataprocessing system comprising a general purpose computer and a computerprogram, as described above, for performing the invention. The term “taxdata provider” refers to each party that has tax information relevant tothe taxpayer's liability or tax reporting obligations. Non-limitingexamples of tax data providers include the taxpayer's employers 22,partnerships, banks 23, savings and loans institutions, mortgageinstitutions, credit card bureaus, thrift institutions, securitybrokerage firms 24, mutual fund holding institutions, charities 25, andfederal, state, local, and foreign taxing authorities 27.

The information provided by the taxpayer to the electronic intermediarymay include identification, such as the taxpayer's social securitynumber, so that electronic data networks, such as the Internet, orelectronic data bases may be searched by the electronic intermediary forthe taxpayer's tax data. Alternatively, the taxpayer could specificallyidentify the tax data providers and could include information on how tocontact the tax data providers electronically, if the electronicintermediary cannot automatically search for and locate the tax dataproviders. Additionally, the taxpayer can provide the electronicintermediary with authorization to contact and receive information fromthe tax data providers. Moreover, the taxpayer can provide theelectronic intermediary with information concerning basic questionsdesigned to identify special tax cases. For example, the taxpayer couldbe asked whether the taxpayer has donated money or other items tocharities. If the taxpayer has donated, the electronic intermediary thennotes that these charities need to be electronically contacted forcollection of tax data.

The taxpayer can provide the electronic intermediary with theinformation on the tax data providers in a number of ways. For example,the electronic intermediary could prompt the taxpayer for theinformation, and the taxpayer could provide the information using aninput means. Non-limiting examples of the input means include: akeyboard, a mouse, a microphone, and a telephone touch-tone pad. In FIG.2, the communication between the taxpayer 20 and the electronicintermediary 21 is indicated by link 31. In the preferred embodiment,this link is an electronic link. Non-limiting examples of such anelectronic link include: input means for a computer, a modem, telephonecommunication equipment, and an electronic data network, such as theInternet.

In the preferred embodiment of the invention, the taxpayer has controlover the electronic intermediary. For example, the electronicintermediary could be a pre-packaged computer program embodied on acomputer-readable medium available in a retail market. In this case, thetaxpayer purchases the electronic intermediary from the retail marketand installs the electronic intermediary on the taxpayer's generalpurpose computer. The taxpayer then provides the information on the taxdata providers as well as other information to the electronicintermediary installed on the taxpayer's general purpose computer.

In an alternative embodiment of the present invention, the electronicintermediary is controlled by a tax return preparer institution, such asa professional tax preparation company, an accounting firm, or anindividual accountant. In this embodiment, the tax return preparer isauthorized by the taxpayer to collect, compute, prepare, and file thetaxpayer's tax return, and to debit or credit the taxpayer's bankaccount for any tax liability or refund, respectively. The granting ofthe authorization by the taxpayer to the tax return preparer to performthese functions for the taxpayer can be implemented in a number of ways.Non-limiting examples of such a granting include: in person; through themail; by facsimile; or electronically using a general purpose computerand a modem connected to a general purpose computer with a modem at thefinancial institution, and connected either through telephonecommunication equipment or an electronic data network, such as theInternet. Because the tax return preparer controls the electronicintermediary in this alternative embodiment, the tax return preparerensures that the electronic intermediary receives the appropriateinformation required, such as the electronic location of the tax dataproviders, and information to determine whether the taxpayer has aspecial tax case.

In step 12, the electronic intermediary electronically collects tax datafrom the tax data providers using electronic links. The electronicintermediary connects electronically to each tax data provider that hastax data pertaining to the taxpayer using the electronic links.Referring to FIG. 2, the electronic intermediary 21 electronicallyconnects to the taxpayer's employers 22 through electronic links 32, tothe taxpayer's banks 23 through electronic links 33, to the taxpayer'sbrokerage firms 24 through electronic links 34, to the taxpayer'scharities 25 through electronic links 35, to taxing authorities 27through electronic links 37, and to the taxpayer's other tax dataproviders 26 through electronic links 36. FIG. 2 is illustrative, andthe electronic intermediary 21 can connect electronically with andcollect tax data electronically from other tax data providers, asdiscussed above in step 11.

In FIG. 2, the electronic links 32-37 can be provided in a number ofways. Non-limiting examples of electronic links used to connectelectronically the electronic intermediary and the tax data providersinclude: a general purpose computer electronically connected totelephone communication equipment using, for example, a modem or to anelectronic data network, such as the Internet; or a computer-readablemedium for transferring and receiving the tax data.

Non-limiting examples of the tax data electronically collected from thetax data providers include the following: a payroll statement, a bankstatement, a savings and loan statement, a mortgage statement, a creditcard bureau statement, a thrift institution statement, a brokerageaccount statement, a mutual fund statement, or a charity statement.

Alternatively, the electronic intermediary can connect electronicallywith the IRS, and receive the tax data from the IRS. In this alternativeembodiment, the tax data providers have already provided the tax data tothe IRS, and the electronic intermediary obtains the tax data from theIRS, and not the tax data providers. Further, the electronicintermediary can connect electronically with other taxing authoritiespossessing the taxpayer's tax data. In this case, the electronicintermediary receives the tax data from the taxing authorities insteadof the tax data providers.

Hence, with the electronic collection of tax data as in step 12, theinvention eliminates the current requirement that a taxpayer manuallycollect the tax data, eliminates the current requirement that a taxpayermanually enter such tax data onto a tax return or into a computer, andeliminates the need for all, or virtually all, intermediate hard copiesof tax data, thereby saving paper, time, and cost.

In step 13, the electronic intermediary processes the tax data obtainedelectronically from the tax data providers in step 12. In the presentinvention, step 13 can be implemented using a computer program similarto the computer programs currently available in the market place, suchas TurboTax, which is a registered trademark of Intuit, Inc. Althoughstep 13 can be implemented with current technology, the currenttechnology requires that the tax data and other information relevant tothe taxpayer be inputted manually. With the present invention, thisinformation is obtained as described above in steps 11 and 12.

Further, in step 13, the electronic intermediary processes the tax databy performing the appropriate tax computations. Non-limiting examples ofappropriate tax computations include: addition, subtraction,multiplication, and division to determine the taxpayer's gross income,relevant deductions, net taxable income, and tax liability. As anillustration, the electronic intermediary compiles the home mortgageinterest paid by the taxpayer and reported as tax data by the financialinstitutions to the electronic intermediary and determines thetaxpayer's relevant deduction for the home mortgage interest paid to thefinancial institutions.

In step 14, the electronic intermediary prepares electronic tax returnsusing the processed tax data from step 13. Similar to step 13, step 14can be implemented using current technology. In practicing theinvention, the electronic tax returns are prepared with respect to theparticular taxing authorities. For example, if the taxing authority isthe IRS, the electronic tax return will correspond to the appropriatefederal tax return, such as the Form 1040 or the Form 1040EZ.

In step 15, the electronic intermediary electronically files theelectronic tax returns prepared in step 14 with the taxing authorities.Referring to FIG. 2, the electronic intermediary 21 electronicallyconnects with the taxing authorities 27 using electronic link 37, andtransmits the electronic tax forms to the taxing authorities 27 over theelectronic links 37. In practicing the invention, the taxing authoritycan be the IRS, or a state, local or foreign taxing authority.

In step 16, the electronic intermediary determines whether the taxpayerowes any taxes to each taxing authority. If the taxpayer does owe to aparticular taxing authority, the process proceeds to step 17, and if thetaxpayer does not owe and will receive a refund, the process proceeds tostep 18. If the taxpayer neither owes nor is entitled to a refund, theprocess proceeds directly to step 19, which is not shown in FIG. 1.

In step 17, after determining in step 16 that the taxpayer owes taxes toa particular taxing authority, the electronic intermediary authorizes afinancial institution to debit the taxpayer's account with the financialinstitution for the taxes owed and to transmit the funds to the taxingauthority. Referring to FIG. 2, the electronic intermediary 21electronically connects to a financial institution using an electroniclink, such as one of the taxpayer's banks 23 using one of the electroniclinks 33. The electronic intermediary authorizes the taxpayer's bank,for example, to debit, or cause to be debited, the taxes owed from thetaxpayer's bank account in the taxpayer's bank 23. Further, theelectronic intermediary 21 authorizes the taxpayer's bank 23 through theelectronic link 33 to transmit funds from the taxpayer's bank 23 to thetaxing authority 27 over electronic link 38. Additionally, theelectronic intermediary 21 can communicate this information to thetaxing authority 27 using electronic link 37.

As an alternative to using the taxpayer's bank as a financialinstitution, the electronic intermediary can authorize any financialinstitution, which is able to connect electronically to the taxingauthority, to debit the taxpayer's account with the financialinstitution and to transmit funds to the taxing authority for the amountowed by the taxpayer. Hence, in step 17, the electronic intermediaryelectronically authorizes the taxpayer's financial institution to paythe taxing authority the taxes owed from funds in the taxpayer'saccount.

In step 18, after determining in step 16 that the taxpayer does not owetaxes to a particular taxing authority and is entitled to a refund fromthe taxing authority, the electronic intermediary authorizes the taxingauthority to credit the refund electronically to the taxpayer's accountwith a financial institution. Referring to FIG. 2, the electronicintermediary authorizes the taxing authority 27 over electronic link 37to credit the taxpayer's financial institution using an electronic link,such as one of the taxpayer's banks 23 using electronic link 38. If thetaxing authority is the IRS, this step can be accomplished using theTreasury Department's Automated Clearinghouse (“ACH”) system. Similartechnology can be used for implementing this step with respect to othertaxing authorities. As an alternative to using the taxpayer's bank asthe financial institution, the electronic intermediary can authorize thetaxing authority to credit the taxpayer's refund to any financialinstitution which is able to connect electronically to the taxingauthority. Hence, in step 18, the electronic intermediary electronicallyauthorizes the taxing authority to credit the taxpayer's refundelectronically to the taxpayer's financial institution.

In step 19, after the electronic intermediary authorizes the payment ofthe taxes owed in step 17 or the collection of the taxpayer's refund instep 18, the electronic intermediary electronically prepares a finalreport. The final report can be embodied in a number of ways, includingelectronically or on paper. Non-limiting examples of what the finalreport can include are the following: the tax data electronicallyreceived from the tax data providers in step 12, the processed tax datafrom step 13, the electronic tax returns prepared in step 14, the dataassociated with the electronic filing of the taxpayer's tax returns instep 15, and the information associated with the payment of thetaxpayer's tax liability in step 17 or the receipt of the taxpayer'srefund in step 18.

In an alternative embodiment of the present invention, instead of theelectronic intermediary preparing the tax returns in step 14, filing thetax returns in step 15, and either authorizing the payment of the taxesowed in step 17 or authorizing the receipt of the tax refund in step 18,the taxpayer can choose to do these steps manually. In this alternativeembodiment, the electronic intermediary performs steps 11-14 and 19.

What is claimed is:
 1. An apparatus for collecting tax data comprising:means for connecting electronically an electronic intermediary to a taxdata provider; means for collecting electronically tax data from saidtax data provider; means for processing electronically said tax datacollected from said tax data provider to obtain processed tax data; andmeans for preparing electronically an electronic tax return using saidprocessed tax data.
 2. An apparatus as in claim 1, wherein said meansfor connecting electronically an electronic intermediary to a tax dataprovider uses an electronic link, and wherein means for collectingelectronically tax data from said tax data provider uses an electroniclink.
 3. An apparatus as in claim 2, wherein said electronic link is anelectronic data network.
 4. An apparatus as in claim 3, wherein saidelectronic data network is the Internet.
 5. An apparatus as in claim 1,wherein said tax data provider is an employer, a partnership, a bank, asavings and loan institution, a mortgage institution, a credit cardbureau, a thrift institution, a securities brokerage firm, a mutual fundholding institution, or a charity.
 6. An apparatus as in claim 1,wherein said tax data is reported on an Internal Revenue Service(“IRS”), state, local, or foreign tax form.
 7. An apparatus as in claim6, wherein said form is an IRS Form W-2.
 8. An apparatus as in claim 6,wherein said form is an IRS Form
 1099. 9. An apparatus as in claim 6,wherein said form is an IRS Form
 1098. 10. A computer-readable mediumembodying a computer program for collecting tax data, said computerprogram comprising code segments for: connecting electronically anelectronic intermediary to a tax data provider; collectingelectronically tax data from said tax data provider; processingelectronically said tax data collected from said tax data provider toobtain processed tax data; and preparing electronically an electronictax return using said processed tax data.
 11. A computer-readable mediumas in claim 10, wherein said tax data is reported on an Internal RevenueService (“IRS”), state, local, or foreign tax form.
 12. Acomputer-readable medium as in claim 11, wherein said form is an IRSForm W-2.
 13. A computer-readable medium as in claim 11, wherein saidform is an IRS Form
 1099. 14. A computer-readable medium as in claim 11,wherein said form is an IRS Form
 1098. 15. A method for automatic taxdata collecting by an electronic intermediary comprising: connectingelectronically said electronic intermediary to a tax data provider;collecting electronically tax data from said tax data provider, whereinsaid tax data is reported on an Internal Revenue Service (“IRS”), state,local, or foreign tax form; processing electronically said tax datacollected electronically from said tax data provider to obtain processedtax data; and preparing electronically an electronic tax return usingsaid processed tax data.
 16. A method as in claim 15, wherein said formis an IRS Form W-2.
 17. A method as in claim 15, wherein said form is anIRS Form
 1099. 18. A method as in claim 15, wherein said form is an IRSForm 1098.